Investors Weigh Future of Unsupervised Self-Driving Technology

Interest in companies developing unsupervised full self-driving (FSD) technology is growing among investors, as they anticipate the dawn of a potentially massive new industry. Companies that enter these markets early often establish significant first-mover advantages, securing market share quickly.

Several firms are actively working on FSD technologies. However, commercialization is still a key hurdle. Two notable players in this arena are Pony AI (NASDAQ: PONY) and Tesla (NASDAQ: TSLA). Analysts on Wall Street are divided on one stock, recommending a buy on the other, projecting a potential doubling from current valuations. It’s essential to analyze these stocks critically.

Tesla: A Controversial Player in FSD Development

Tesla has been a focal point of controversy this year, largely due to its CEO, Elon Musk, whose political engagements have drawn criticism and possibly alienated some customers. The company reported first-quarter deliveries of 337,000 vehicles, marking the lowest figure since 2022.

Image source: Getty Images.

Despite these challenges, Tesla’s high valuation rests on the belief that it can effectively commercialize FSD technology. The engineering team has reportedly completed over 50,000 miles of testing with driverless cars. An upcoming demonstration in June in Austin, Texas, promises residents the chance to experience a self-driving Model Y.

During Tesla’s first-quarter earnings call on April 22, CFO Vaibhav Taneja described the FSD technology as “safer than a human driver.” Musk expressed optimism, suggesting that FSD could soon allow users to relax while their cars navigate: “So the acid test being … can you go to sleep in your car and wait until your destination? And I’m confident that will be available in many cities in the U.S. by the end of this year,” he stated.

Investor enthusiasm is evident, yet analysts remain divided. According to TipRanks, among 37 Wall Street analysts’ reports issued in the past three months, 16 recommend buying the stock, 10 suggest holding, and 11 advise selling. The average price target reflects about a 3% potential downside as of April 30.

Musk’s ambitious timeline for FSD might face delays, especially considering the uncertainties surrounding adoption and regulation. Presently, much speculation surrounding Tesla’s future is likely already reflected in its high valuation of 135 times forward earnings. As such, a cautious approach appears prudent.

Pony AI: A Rising Competitor

In contrast, Pony AI, with a market capitalization of just over $3 billion, has recently emerged as a strong competitor to established players like Tesla, especially after its stock more than doubled since late April. The company made headlines by unveiling its seventh-generation FSD system at the Shanghai Auto Show, a move that impressed many investors.

Pony AI’s CEO, James Peng, claimed that the new system offers enhanced safety compared to that of human drivers. He further noted that the technology is more integrated than that of competitors like Waymo. Perhaps most notably, management indicated it could now develop its FSD system at a cost 70% lower than previously.

Additionally, a new partnership with Chinese tech giant Tencent is set to expedite commercialization. This collaboration will utilize Tencent’s capabilities in WeChat and online mapping technologies.

While there are fewer analysts covering Pony AI, at least three have released reports since late last year, all starting with buy ratings and price targets ranging from $18 to $20. This suggests that Pony stock could potentially double from its current levels, positioning the company as a leader in autonomous driving on a path toward eventual profitability.

Although Pony AI has reported significant losses in 2024, its promising technology and recent advancements present a tempting opportunity for investors to consider a small investment.

Investment Considerations for Pony AI

Before deciding to invest in Pony AI, take the following into account:

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Bank of America is an advertising partner of Motley Fool Money. Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bank of America, Goldman Sachs Group, Tencent, and Tesla. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.